California Commercial Code 9408 – (a) Except as otherwise provided in subdivisions (b) and (f), a …
(a) Except as otherwise provided in subdivisions (b) and (f), a term in a promissory note or in an agreement between an account debtor and a debtor that relates to a health care insurance receivable or a general intangible, including a contract, permit, license, or franchise, and which term prohibits, restricts, or requires the consent of the person obligated on the promissory note or the account debtor to, the assignment or transfer of, or the creation, attachment, or perfection of a security interest in, the promissory note, health care insurance receivable, or general intangible, is ineffective to the extent that the term does, or would do, either of the following:
(1) It would impair the creation, attachment, or perfection of a security interest.
Terms Used In California Commercial Code 9408
- agreement: means the total legal obligation that results from the parties' agreement as determined by this code and as supplemented by any other applicable laws. See California Commercial Code 1201
- Attachment: A procedure by which a person's property is seized to pay judgments levied by the court.
- Contract: A legal written agreement that becomes binding when signed.
- contract: means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section 1303. See California Commercial Code 1201
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
- Person: means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, or any other legal or commercial entity. See California Commercial Code 1201
- Remedy: means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal. See California Commercial Code 1201
- Right: includes remedy. See California Commercial Code 1201
- Security interest: includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to Division 9 (commencing with Section 9101). See California Commercial Code 1201
- Statute: A law passed by a legislature.
- Term: means a portion of an agreement that relates to a particular matter. See California Commercial Code 1201
(2) It provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health care insurance receivable, or general intangible.
(b) Subdivision (a) applies to a security interest in a payment intangible or promissory note only if the security interest arises out of a sale of the payment intangible or promissory note, other than a sale pursuant to a disposition under Section 9610 or an acceptance of collateral under Section 9620.
(c) Except as otherwise provided in subdivision (f), a rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment or transfer of, or the creation of a security interest in, a promissory note, health care insurance receivable, or general intangible, including a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute, or regulation does, or would do, either of the following:
(1) It would impair the creation, attachment, or perfection of a security interest.
(2) It provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health care insurance receivable, or general intangible.
(d) To the extent that a term in a promissory note or in an agreement between an account debtor and a debtor that relates to a health care insurance receivable or general intangible or a rule of law, statute, or regulation described in subdivision (c) would be effective under law other than this division but is ineffective under subdivision (a) or (c), the creation, attachment, or perfection of a security interest in the promissory note, health care insurance receivable, or general intangible is subject to all of the following rules:
(1) It is not enforceable against the person obligated on the promissory note or the account debtor.
(2) It does not impose a duty or obligation on the person obligated on the promissory note or the account debtor.
(3) It does not require the person obligated on the promissory note or the account debtor to recognize the security interest, pay or render performance to the secured party, or accept payment or performance from the secured party.
(4) It does not entitle the secured party to use or assign the debtor’s rights under the promissory note, health care insurance receivable, or general intangible, including any related information or materials furnished to the debtor in the transaction giving rise to the promissory note, health care insurance receivable, or general intangible.
(5) It does not entitle the secured party to use, assign, possess, or have access to any trade secrets or confidential information of the person obligated on the promissory note or the account debtor.
(6) It does not entitle the secured party to enforce the security interest in the promissory note, health care insurance receivable, or general intangible.
(e) Subdivision (c) does not apply to an assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, a claim or right to receive compensation for injuries or sickness as described in paragraph (1) or (2) of subsection (a) of Section 104 of Title 26 of the United States Code, as amended, or a claim or right to receive benefits under a special needs trust as described in paragraph (4) of subsection (d) of Section 1396p of Title 42 of the United States Code, as amended, to the extent that subdivision (c) is inconsistent with those laws.
(f) This section does not apply to a security interest in an ownership interest in a general partnership, limited partnership, or limited liability company.
(g) In this section, “promissory note” includes a negotiable instrument that evidences chattel paper.
(Amended by Stats. 2023, Ch. 210, Sec. 58. (SB 95) Effective January 1, 2024.)